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organized crime (Art. 7, subsection 2). Typical acts under judicial assistance as mentioned by Art. 1, subsection 4 of the Treaty are, among other things, the taking of depositions or other statements, the delivery or securing of court records, documents, or other evidence, and the authentication of documents. Art. 38, subsection 4 of the Treaty makes a distinction between this type of judicial assistance proper and "furnishing information in cases relating to taxes which fall under the Convention of May 24, 1951 for the avoidance of double taxation with respect to taxes on income” (see also the message of the Federal Council of August 28, 1974, BB1 1974 II 587).

(c) The EStV inferred from the judgment of December 23, 1970 that, according to the interpretation of the Supreme Court, contrary to past practice, Art. XVI of the DBA-US contains an obligation not merely to provide information but also to secure evidence meeting the requirements of American courts and to deliver such evidence to the tax authorities of the United States to the extent to which that would be permitted under Swiss law in analogous tax cases.

Judging the first administrative-court complaint of Mr. X., however, had merely been a matter of deciding whether or not the official report compiled by the EStV should, in accordance with the ruling then under appeal, be delivered to the IRS on the basis of Art. XVI of the DBA-US. The Federal Court answered this question in the affirmative, rejecting the appeal. The reasons given for the decision were essentially that the questioned information on banking transactions was to be considered available information as defined by Art. XVI of the DBA-US, because, according to Swiss law, the tax authorities would have to be furnished information in analogous tax fraud cases, at least in the three cantons where there were major banking centers (Zurich, Basel, Geneva). By means of this argument the court protected the ruling under appeal while deviating from the arguments of the ESIV which, in cases involving tax fraud, wanted to make the transmittal of available banking information contingent upon whether the invocation of banking secrecy was justified or constituted an abuse.

A distinction between justified and improper invocation of banking secrecy in tax fraud cases cannot be derived from Art. XVI of the DBA-US as a conclusive criterion for granting or refusing administrative aid ; nor is there any likelihood that it would lead to a satisfactory practicable solution. However, the Federal Court arrived at the conclusion that information as defined by Art. XVI was "available” and ought to be exchanged, if in the event of a reversal of the situation, i.e. in an analogous case of fraudulent evasion of Swiss income taxes, the internal revenue service could demand to be given the information concerned. There is no reason for a reexamination of this question of principle which was settled by the judgment of December 23, 1970; the permissible content of information supplied through an official report is not at issue now. It is essential, however, to note that at the time the Federal Court neither wished to, nor had to, comment on the question of judicial assistance going beyond the granting of information. By stating in connection with the definition of "available information” what investigative acts would be possible under Swiss law if the facts of the case were changed around, the court by no means wanted to indicate that in accordance with Art. XVI of the DBA-US the requesting authority should not only be furnished information but also, to the extent possible, any evidence that was required under American law. In the event, the point at issue was whether the information envisaged was to be considered "available" and whether it could be transmitted. However, the obligation to render administrative assistance as stated in Art. XVI of the DBA-US was not by means of interpretation to be casually expanded to include on obligation to render comprehensive judicial assistance.

All considerations were in reference to the permissibility of the official report; no meaning going beyond that should be attached to them. In defining the scope of available information to be given to the IRS somewhat differently from past administrative practice, the Federal Court was not questioning the form of administrative assistance as set down in the Convention-i.e. the furnishing of information-but rather it was concerned only with determining the permissible content of such information. It is therefore wrong to conclude from individual phrases of the judgment of December 23, 1970 that the court was interpreting Art. XVI of the DBA-US to mean an obligation to render comprehensive judicial assistance. Such an extensive interpretation of the administrative assistance clause in the DBA would also be at variance with the above-mentioned state treaty of May 25, 1973 on mutual judicial assistance in criminal cases which, after all, assures judicial assistance in cases involving fiscal offenses only as an exception and under specific conditions.

(d) Since according to the wording and the meaning of Art. XVI of the DBAUS the obligation to render administrative assistance is limited to furnishing information and does not include specific measures that come under judicial assistance proper, the additional investigative acts ordered by the ruling of August 31, 1973 are not covered by the treaty obligations. Hence, the ruling under appeal is in violation of federal law, and the administrative-court complaints are to be upheld.

Hence, the Federal Court finds as follous:

The complaints are upheld, and the decision of the Eidg. Steuerverwaltung [Federal Internal Revenue Service) of August 31, 1973 as well as its ruling on the appeal of February 12, 1974, are reversed.

Mr. LEVITAS. If there are no further questions, let me thank you for your excellent testimony this morning and for your assistance to the subcommittee in its investigation.

The subcommittee will stand adjourned until tomorrow morning.

[Whereupon, at 12:25 p.m., the subcommittee adjourned, to reconvene at 10 a.m., Tuesday, June 29, 1976.]



(Administration of Bank Secrecy and Reporting Act)

TUESDAY, JUNE 29, 1976


Washington, D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 2247, Rayburn House Office Building, Hon. Benjamin S. Rosenthal (chairman of the subcommittee) presiding.

Present: Representatives Benjamin S. Rosenthal, Robert F. Drinan, and John N. Erlenborn.

Also present: Peter S. Barash, staff director; Herschel F. Clesner, chief counsel; Doris Faye Taylor, clerk; and Henry C. Ruempler, minority professional staff, Committee on Government Operations.

Mr. ROSENTHAL. The subcommittee will be in order. We continue this morning the hearings of the administration of the Bank Secrecy and Reporting Act.

Our first witness is the Honorable Scott P. Crampton, Assistant Attorney General, Tax Division, Department of Justice. We are pleased to have you with us.

Mr. Crampton, you have a prepared statement. Why don't you go ahead.



Mr. CRAMPTON. Thank you. I welcome the opportunity to appear before you to present the views of the Department of Justice on those provisions of the Bank Secrecy and Reporting Act of 1970 which have à bearing on the functions and responsbilities of the Tax Division.

Matters coming under the jurisdiction and supervision of the Tax Division include, with some minor exceptions, all civil and criminal judicial proceedings which arise under the internal revenue laws other than litigation in the Tax Court. For the most part my testimony will focus on the experiences of the Tax Division's Criminal Section concerning the enforcement of criminal tax sanctions of the Internal Revenue Code and the assistance which the Bank Secrecy Act provides in the tax enforcement program.

As you know, the act is designed to obtain financial information which the Congress found to have "a high degree of usefulness in criminal, tax, and regulatory investigations and proceedings.” Title I of the act requires domestic financial institutions to maintain records of their customers' identities, to make microfilm copies of checks and similar instruments, and to keep records of certain other items.

The importance of photocopies of checks to effective law enforcement, especially where tax crimes are concerned, cannot be overestimated. It is obvious that, without the maintenance of adequate records by our domestic financial institutions, the efforts of the Federal Government to enforce the criminal tax sanctions enacted by Congress would seriously be impaired, if not virtually eliminated.

The recordkeeping provisions of title I have in fact proven to be of considerable importance in criminal tax investigations. Whereas many of the records now required to be kept in accordance with the provisions of title I of the act have been traditionally kept by domestic financial institutions on a voluntary basis, the requirements imposed by title I offer assurance that such records will continue to be available.

The recordkeeping provisions under discussion are necessary in order to prevent financial institutions from unilaterally abandoning the practice of maintaining adequate and appropriate records. Prior to enactment of the act, it has been found that a few sizable banks had abolished or limited the practice of photocopying checks and similar instruments thereby frustrating federal investigators in their attempts to secure information of importance in criminal tax investigations.

The importance of the requirements of title I in criminal tax investigations extends beyond inquiries concerning American residents who utilized domestic financial institutions. Records of the type required to be kept by title I have been of significant importance in proving criminal tax offenses committed by American residents using foreign financial facilities located in jurisdictions with various types of secrecy laws.

In this regard, a few examples of criminal tax prosecutions which have been successfully concluded in recent years are worthy of comment.

One such case, United States v. Sidney Rosenstein, et al., 474 F. 2d 705 (C.A. 2, 1973), involves two New York City businessmen who, for many years, had been highly successful manufacturers' representatives selling a wide variety of products to militarv post exchanges around the world. After a 3-year investigation and a 6-week jury trial in the Southern Judicial District of New York, the defendants were convicted of various tax charges based on their having diverted untaxed sales commissions of nearly $2 million to a Swiss bank account via a shell Liechtenstein entity. The Government's computation of unreported income was supported by copies of canceled checks issued by some 42 American manufacturers who had utilized the defendants' services and paid them sales commissions with checks made payable to the sham Liechtenstein firm, pursuant to instructions received from the defendants.

The commission checks drawn on domestic financial institutions, and introduced into evidence, showed that they had been deposited in the Bank Leu, Zurich, Switzerland. Without the availability of such


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